ASIC Report on the Regulation of Corporate Finance

ASIC has published its latest report on corporate finance regulation in Australia, recently releasing Report 567 ASIC Regulation of Corporate Finance: July to December 2017 ("Report").

The Report provides companies and their advisers with greater transparency about the role ASIC plays as corporate regulator. It also provides statistical data, highlights key focus areas and includes relevant guidance about ASIC’s regulation of fundraising, mergers and acquisitions, corporate governance issues and other general corporate finance areas. A copy of the Report can be accessed here.

The Report includes key observations of ASIC on the topics of:

fundraising disclosure and conduct;

mergers and acquisitions; and

corporate governance.

These are discussed in more detail below.

1 Fundraising: Review of Fundraising Disclosure and Conduct

Disclosure issues continue to be a key focus for ASIC in its regulatory activities in the fundraising space.

During the period between July and December 2017, ASIC received 329 original disclosure documents, raising over $5 billion. Of the 329 fundraising offers, ASIC raised disclosure concerns on 24.3% of fundraising offers (80 of 329 original fundraising offers), extended the exposure period 39 times (11.9%), issued 10 interim stop orders in relation to 6 offers (1.8%) and 2 final stop orders (0.6%).

The top five most frequent disclosure concerns ASIC raised about prospectuses were:

disclosure insufficient or not clear, concise and effective (raised 8 times); and

insufficient disclosure of directors’ history (raised 6 times).

2 Mergers and Acquisitions

During the period between July and December 2017, ASIC reviewed takeover bids, schemes of arrangements and other control transactions, and actively participated in applications made to the Takeovers Panel.

Overall the number of independent control transactions was consistent with the January to June 2017 period, however, the total value of control transactions using a bid or scheme during the period was substantially lower than the previous period — $4.5 billion, down from $12.4 billion.

ASIC also provided insight into some of the issues that it has encountered as part of its regulatory oversight of control transactions, which included:

classes and fairness in scheme of arrangement: ASIC recommended for companies and their advisers to take a conservative approach to the constitution of classes to avoid uncertainties about whether the scheme is fair;

timing for scheme of arrangement: ASIC warned that it may query scheme proponents on any uncertainty regarding, and their progress towards the conditions precedent before the first court hearing; and

independent expert reports: ASIC reminded all Australian Financial Services Licensees that provide independent expert reports of their responsibilities as financial system gatekeepers. It warned that failure by an AFS licensee to critically assess specialist reports may result in ASIC taking review and surveillance steps.

3 Corporate Governance

ASIC actively monitor AGMs held between October and December each year to identify emerging trends and corporate governance issues (a copy of our alert on ASIC’s AGM report card can be accessed here). ASIC stated that, while there was a high level of shareholder engagement through the use of AMGs by companies, a high number of companies continued to decide resolutions using a show hands rather than by conducting a poll.

In the Report, ASIC noted that it received 309 related party approval notices to be put to members. Although the number of related party approval notices lodged with ASIC are over double that lodged in the previous period, it is consistent with historical trends. ASIC urged companies to seek ASX comments prior to lodging meeting documents in order to reduce the number of documents requiring re-lodgement.

Also, ASIC highlighted that companies should discuss environmental and sustainability risks in their reports on the financial position, strategy and prospects, in particular where those risks could affect financial performance or outcomes.

4 Key takeaways

In the Report, ASIC has again emphasised its focus on ensuring that investors and shareholders receive effective disclosure documents, which we expect will continue throughout 2018. Companies should ensure that their disclosure documents and shareholder communications meet the standards required, and should endeavour to engage with investors and shareholders effectively and with increased transparency.

Please contact Rohan Harris or Rory Maguire from our Corporate & Commercial team if you would like to learn more about the Report, or if you would like any further information regarding corporate regulatory and governance matters.

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People that can help

Rohan Harris

Team member title

Principal

Team member contact no

+61 2 8987 0024

Team member email

rharris@rk.com.au

Rohan is Deputy Chairperson and also leads Russell Kennedy's Corporate and Commercial practice and a ...

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